Segment Focus Manufacturers 3

Dealers 4

Technology 5

Financing for Agricultural Machinery 6

Recent M&A Activity

Agricultural Equipment 7

Agribusiness Industry Commodity Prices 8

Publicly Traded Agriculture Companies 9

Indices Performance 10

Historical EV / EBITDA Multiples 10

About Mercer Capital 11

Q1: Agriculture Machinery, Equipment & Implements

Q2: Crops and Crop Services

Q3: Agriculture Real Estate

Q4: Agriculture Chemicals

SEGMENT FOCUS Agriculture Machinery, Equipment & Implements 2017

www.mercercapital.com

VALUE FOCUS

Agribusiness Industry

© 2017 Mercer Capital // www.mercercapital.com 1

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

The agricultural equipment industry is facing a number of headwinds. The decline in farm income since 2014 has

depressed sales of agricultural machinery. The decline in North American tractor sales in 2016 was the third annual

decline in a row and the first three-year decline since 1998-2000. Lower commodity prices due to record high yields

and reduced global crop demand due to an appreciated dollar will continue to impact the disposable income available to

producers to fund new equipment purchases and upgrades. Equipment manufacturers are further impacted from a drag

in global demand due to the appreciated dollar as exports have historically comprised a quarter of revenues. Many farms

purchased equipment during the period of growth before 2014 which significantly lowered the average fleet age and may

cause a delay in equipment renewal. Lower farm incomes have also led to a greater proportion of agricultural equipment

purchases being financed with debt especially given the depressed the rate environment of the post-recession period.

Rising interest rates could impact the affordability of debt financing, further reducing demand for equipment.

Agricultural EquipmentHeadwinds

Segment Focus

Agriculture Machinery, Equipment & Implements

Rising Interest Rates

Declining Government

Payments

Lower Commodity

Prices

Reduced Global Crop

Demand

Lower Average Age of Fleet

Appreciated Dollar

© 2017 Mercer Capital // www.mercercapital.com 2

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

U.S. Farm Sector Income Statement, 2012-2017F

$ Billions

2012 2013 2014 2015 2016F 2017F

Crops 231.6 220.8 211.4 185.7 187.7 186.7

Livestock 169.8 182.7 212.8 189.8 168.1 168.2

Direct Government Payments 10.6 11.0 9.8 10.8 13.0 12.5

Other Farm-related Income 39.3 41.0 36.6 34.4 30.7 34.4

Gross Cash Income $451.3 $455.5 $470.5 $420.6 $399.5 $401.8

Noncash Income 18.3 17.7 16.9 17.8 18.8 19.9

Value of Inventory Adjustment (19.8) 10.6 (4.3) 1.3 (0.1) (9.3)

Total Gross Income $449.8 $483.8 $483.1 $439.7 $418.2 $412.4

Total Expenses 353.3 360.1 390.5 358.8 349.9 350.0

Net Farm Income $96.5 $123.7 $92.6 $80.9 $68.3 $62.3

Source: USDA WASDE Report, February 7, 2017

The most recent U.S. farm sector income forecast projects net farm income of $68.3 billion in 2016, a 15.6% decline

from the 2015, according to the USDA. Farm income is expected to fall to cyclical lows in 2017, falling another 8.7% to

$62.3 billion. The major contributor to the decline in income is a reduction in crop and livestock receipts but government

direct payments are expected to decline as well. Production costs have remained flat as a decline in crop and livestock

input costs are offset by a rise in labor, fuel, and interest expenses.

Despite all of these factors, publicly traded stocks of equipment dealers and manufacturers continue to outperform the

S&P 500 for the trailing twelve months, primarily reflecting that investor expectations were dire in the year ago period

(early 2016) and the expected impact on the ag equipment industry thus far has been more muted.

Agriculture Machinery, Equipment & Implements (continued)

© 2017 Mercer Capital // www.mercercapital.com 3

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

Manufacturers The agricultural equipment manufacturing industry has been volatile for the five years to 2017, reporting negative 2.6%

annual revenue growth over the period. Strong growth was reported over the early part of that period, while recent

trends have led to a decline in sales. Industry forecasts anticipate annual growth of 0.3% through 2022. An investor

presentation from Deere & Company (NYSE: DE), the industry’s market share leader (25%), projects a roughly 5%

sales decline for the agriculture segment of the business in the U.S. and Canada in 2017 which is slightly improved from

the previous forecast of 5-10%. Deere has indicated that end markets are beginning to stabilize and a focus on cuts in

receivables and inventory will allow it to realign production with retail demand. Deere has raised guidance on global

sales due to strong demand in South America, especially Brazil, which is expected to increase purchases by 20%. South

America offers one bright spot for North American exporters due to the strong cash position of South American farmers.

Inventory management becomes a central focus of manufacturers during cyclical downturns. Well managed inventory

levels can reduce the amount of discounting necessary to move products, which has the potential to significantly erode

margins. Currently, large farm-equipment inventories present a drag on manufacturers despite output costs. North

American high-power tractors (100-plus horsepower) inventory was at 54% of sales in March on a trailing 12 month

basis, significantly higher than the 25-40% range from 2013-2015. The four-wheel drive tractor inventory ratio rose to

35.8% from 30% last year and the combine inventory ratio rose to 23.4% from 18% last year.

© 2017 Mercer Capital // www.mercercapital.com 4

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

Agricultural machinery and equipment dealerships have been consolidating for several years, a trend exacerbated by

declining industry sales resulting from lower farm incomes. From 2009 to 2016, the number of North American farm

equipment dealer groups that owned five or more stores grew from 151 to 192. Consolidation provides dealers with

increasing economies of scale, and is viewed favorably by the manufacturers as well given that it reduces the number of

dealers that they must oversee.

Through March 2017, dealers continued to see the most dramatic sales declines in higher horsepower equipment,

likely due to the higher price point at which these products sell and the lower level of disposable income in the sector,

forcing producers to “trade down” for their equipment purchases. This “trading down” is illustrated by the increased sales

of less than 100 horsepower tractors.

As one of the largest equipment dealer groups, Titan Machinery’s (NASDAQ: TITN) fourth quarter 2017 results (Titan

has a fiscal year ending January 31, 2016) demonstrate the challenges facing the industry. Titan reported a 13.8%

annual decline in equipment revenue and a 14.5% annual decline in agriculture-related revenue. Margins have stabilized

due to stable equipment values but low crop prices will continue to weigh on revenues.

Dealers

United States Unit Retail Sales – March 2017

March YTD – March Beginning Inventory Mar. 20172017 2016 %Chg 2017 2016 %Chg

2WD Farm Tractors

< 40 HP 13,063 11,892 9.8 26,480 23,252 13.9 76,478

40 < 100 HP 4,863 4,785 1.6 11,322 11,739 -3.6 35,779

100+ HP 1,452 1,706 -14.9 3,774 4,363 -13.5 9,169

Total 2WD Farm Tractors 19,378 18,383 5.4 41,576 39,354 5.6 121,426

4WD Farm Tractors 229 190 20.5 457 524 -12.8 755

Total Farm Tractors 19,607 18,573 5.6 42,033 39,878 5.4 122,181

Self-Prop Combines 300 270 11.1 715 851 -16.0 857

Source: Association of Equipment Manufacturers

© 2017 Mercer Capital // www.mercercapital.com 5

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

Applying new technologies to agriculture will continue to increase crop yields, streamline operations, and increase

overall efficiency. Machinery manufacturers and farm technology firms are continuing to increase automation on the

farm, producing new technologies such as precision steering and intelligent management systems. Companies in this

industry include technology specific companies, such as Trimble Navigation Limited, as well as more traditional equip-

ment manufacturers that have started to explore technologies to enhance their core product, such as Deere & Company.

The precision ag technology centers on Geographical Information Systems (GIS), the intricacy of which has increased

significantly over the past five years. Other products include variable-rate application controllers, yield monitoring sys-

tems, guidance systems, and technical support.

The Precision Agriculture Systems and Services Industry (precision ag) experienced 4.7% annual revenue growth

from 2011 to 2016, and is forecast to experience annual growth of 5.5% from 2016 to 2021. This compares favorably

to more anemic growth forecasts for more established ag-related industries, such as equipment manufacturing and

dealers. While certain factors such as commodity pricing and general demand for agricultural machinery will negatively

impact growth in the near-term, technological advances and the desire for improved crop yields and productivity will

continue to drive demand for the industry.

Unlike the adoption of advances in robots and biotechnology which have been embraced by many farmers and gen-

erated significant changes and improvements for the management of farms, farmers have been disappointed with the

performance of big data services. Farmers expected to use large amounts of collected data to unlock insights into

their land’s performance and boost production. However, problems with digesting and interpreting the available data,

using the necessary software, and integrating the technology with farm equipment have delayed the application of

big data to farm management. Investments in data-driven agricultural services fell 39% in 2016 mainly due to a

decline in drone investments.

Technology

© 2017 Mercer Capital // www.mercercapital.com 6

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

Financing for Agricultural Machinery

A prolonged period of low interest rates has served to stimulate the market for agricultural equipment, much of which is

purchased on credit. However, recent agricultural equipment purchases have increasingly been financed out of neces-

sity rather than the availability of cheap debt. As shown below, farm balance sheets are beginning to show some signs

of stress following three years of lower commodity prices, although from a multi-decade perspective farm leverage

remains at historically low levels.

Higher debt-to-equity ratios have increased borrowing costs for farmers, as the Federal Reserve Bank of Kansas

City reported in April 2017 that interest rates have increased for all categories of non-real estate farm loans, as shown

below. A large portion of machinery lending is likely not reflected in these amounts due to the fact it is dealer-financed.

Despite remaining at historical lows around 1% in recent periods, delinquency rates at commercial banks for non-real

estate farm loans have started to increase and are currently approximately 2%.

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

-

500

1,000

1,500

2,000

2,500

3,000

2011 2012 2013 2014 2015 2016F 2017F

$ B

illio

ns

Farm Net Equity Debt-to-Equity

Bankers also continued to extend amortizations for most loan types in recognition of reduced capacity for repayment. Specically, thematurity period for operating loans, which typically account for the majority of non-real estate lending at agricultural banks, increased 22percent from 2016 and was three months longer than in 2010. Maturity periods for livestock loans also have continued to increase inrecent years (Chart 6). 

Chart 6: Maturities on Non-Real Estate Farm Loans

Section B – Fourth Quarter Call Report Data

In the fourth quarter of 2016, total farm debt at commercial banks continued to increase, but at a much slowerpace than previous quarters. According to Call Report data, total farm debt outstanding increased by slightlyless than 2 percent from the previous year, the slowest growth since the rst quarter of 2012 (Chart 7). Non-real estate debt decreased for the rst time since 2011 and was the primary driver of slower loan growth inthe fourth quarter. In 2011, however, non-real estate lending declined largely as a result of surging commodityprices and increased revenue in the farm sector. More recently, farm lending has slowed alongside persistentweakness in the farm economy.

Chart 7: Farm Debt Outstanding at Commercial Banks

Farm Balance Sheet Leverage Interest Rates on Non-Real Estate Farm Loans, First Quarter

Source: Agricultural Finance Databook, Table A.7, data obtained from the national Survey of Terms of

Bank Lending to Farmers

Source: United States Department of Agriculture Economic Research Service

© 2017 Mercer Capital // www.mercercapital.com 7

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

The majority of acquisitions in the equipment dealer and precision ag industries occur between smaller private companies,

and therefore terms of the deals are rarely known. On the other hand, most manufacturers are large, publicly-traded

companies for which more information is available. Recent developments in the global agricultural M&A space have

come under increased scrutiny due to antitrust concerns. Monsanto (NYSE: MON) abandoned a deal to sell its high-

tech crop planter unit to Deere due to the U.S Department of Justice’s worries that the deal would stifle competition

in the precision ag industry. Monsanto determined that they would not be able to win approval for the deal that was

announced in November 2015 and valued at $190 million.

Recent M&A ActivityAgricultural Equipment

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

© 2017 Mercer Capital // www.mercercapital.com // Data Source: Bloomberg 8

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© 2017 Mercer Capital // www.mercercapital.com 9

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

Publicly Traded Agribusiness Companies

Company Name Ticker

Price3/31/17

($)

52 Wk Perform(Market

Cap)

LTM Revenue

($)

Enterprise Value ($M)

Debt/EV

EBITDA Margin

EV / LTM EBITDA

(x)

TEV / Nxt Yr EBITDA

(x)

Price/ LTM

Earnings (x)

Diversified AgribusinessAgrium Inc. TSX:AGU 95.24 7.7% 13,660 17,780 28.6% 11.5% 11.33 9.56 22.70 CF Industries Holdings, Inc. NYSE:CF 29.35 -6.3% 3,718 14,600 39.6% 32.2% 12.21 11.16 NAThe Mosaic Company NYSE:MOS 29.18 8.1% 7,067 13,403 29.5% 15.2% 12.50 10.63 254.82 Potash Corporation of Saskatchewan Inc. TSX:POT 17.05 0.0% 3,824 18,917 24.4% 32.7% 15.15 13.11 36.06 Intrepid Potash, Inc. NYSE:IPI 1.72 55.0% 140 346 25.5% -6.0% NA 24.49 NATerra Nitrogen Company, L.P. NYSE:TNH 98.24 -11.7% 429 1,846 0.0% 59.4% 7.25 NA 11.92 Yara International ASA OB:YAR 38.52 2.2% 10,847 12,288 16.3% 12.4% 9.12 6.75 17.20 Monsanto Company NYSE:MON 113.20 29.0% 14,475 56,104 16.3% 29.4% 13.17 14.44 26.00 Syngenta AG SWX:SYNN 442.02 5.9% 12,790 42,749 8.5% 20.5% 16.32 14.90 34.53 Archer-Daniels-Midland Company NYSE:ADM 46.04 26.8% 62,950 32,321 22.3% 4.1% 12.54 10.61 19.35 Bunge Limited NYSE:BG 79.26 39.9% 44,884 15,646 33.2% 3.3% 10.70 7.93 20.79 Median - Diversified Agribusiness 7.7% 10,847 15,646 24.4% 15.2% 12.36 10.89 22.70

Agricultural Machinery & Equipment ManufacturersDeere & Company NYSE:DE 108.86 41.4% 26,545 66,488 52.2% 14.6% 17.11 19.13 23.47 AGCO Corporation NYSE:AGCO 60.18 21.1% 7,479 6,116 31.0% 7.7% 10.63 10.12 34.08 Lindsay Corporation NYSE:LNN 88.12 23.1% 509 954 12.3% 10.8% 17.33 14.91 40.25 Median - Manufacturers 23.1% 7,479 6,116 31.0% 10.8% 17.11 14.91 34.08

DealersTitan Machinery Inc. NasdaqGS:TITN 15.34 32.7% 1,213 633 57.2% 2.2% 23.26 16.85 NARocky Mountain Dealerships Inc. TSX:RME 7.62 68.6% 714 387 70.9% 4.5% 12.06 14.04 11.68 Cervus Equipment Corporation TSX:CERV 8.86 4.5% 850 259 57.4% 3.9% 7.84 7.13 9.12

Median - Dealers 32.7% 850 387 57.4% 3.9% 12.06 14.04 10.40

Source: Capital IQ

© 2017 Mercer Capital // www.mercercapital.com 10

Mercer Capital’s Value Focus: Agribusiness Industry First Quarter 2017

60

70

80

90

100

110

120

130

140

150

160

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17

MCM Diversified Ag Index MCM Ag Machinery Manufacturing IndexMCM Ag Machinery Dealer Index S&P 500

12/31/13 = 100

Mercer Capital Agriculture Indices: One Year Performance

5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

3/31/15 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17

Diversified Ag Equip Manufacturers Equip Dealers

Historical EV / EBITDA Multiples

Source: Yahoo! Finance

Source: Bloomberg

Mercer CapitalAgribusiness Industry Services

Contact Us

Copyright © 2017 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the publisher’s permission. Media quotations with source attribution are encouraged. Reporters

requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Industry Focus is published quarterly and does not constitute legal or financial consulting advice. It is offered as an information service to

our clients and friends. Those interested in specific guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name to our mailing list to receive this complimentary

publication, visit our website at www.mercercapital.com.

Mercer Capital has expertise providing business valuation and financial advisory services to companies in the agribusiness industry.

Industry Segments

Mercer Capital serves the following industry segments:

• Agriculture Machinery, Equipment, & Implements

• Crop and Crop Services

• Agriculture Real Estate

• Agriculture Chemicals

Contact a Mercer Capital professional to discuss your needs in confidence.

Nicholas J. Heinz, ASA

901.322.9788

heinzn@mercercapital.com

Timothy R. Lee, ASA

901.322.9740

leet@mercercapital.com

Laura J. Stevens, CFA, ASA

901.322.9764

stevensl@mercercapital.com

Mercer Capital

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Memphis, Tennessee 38137

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www.mercercapital.com

BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES

Services Provided

• Valuation of agriculture companies

• Transaction advisory for acquisitions and divestitures

• Valuations for purchase accounting and impairment testing

• Fairness and solvency opinions

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shareholder disputes